Issue 2 (2), 2015

ARMENIA AZERBAIJAN VYSHEGRAD 4 VYSHEGRAD

UKRAINE ENERGY SECURITY ENERGY EASTERN PARTNERSHIP PIPELINESREVISION POLICY NEIGHBOURHOOD DCFTA POLITICS CHOICE TRADE ECONOMYFINANCIAL CRISIS

BLACKASSOCIATION SEA FRAMEWORK AGREEMENT UNION EUROPEAN

• Politics vs Economy • Energy Security • Association Agreements UA: Analytica · 2 (2), 2015 1 Issue 2 (2), 2015 BOARD OF ADVISERS

Politics vs Economics Dr. Dimitar Bechev (Bulgaria, Research fellow, London School of Economics and Social Science)

Dr. Iulian Chifu (Romania, Director of the

Editors Conflict Analysis and Early Warning Center) Dr. Hanna Shelest Dr. Igor Koval (Ukraine, Rector of Odessa Dr. Mykola Kapitonenko National University by I.I. Mechnikov)

Dr. Sergey Minasyan (Armenia, Deputy Publisher: Director at the Caucasus Institute) Published by NGO “Promotion of Intercultural Cooperation” (Ukraine), Stephan Meuser (Germany, Director of Centre of International Studies (Ukraine), the Representation of the Friedrich Ebert Foundation in Ukraine and Belarus) Representation of the Friedrich Ebert with the financial support of the Foundation in Ukraine. James Nixey (the United Kingdom, Head of the Russia and Eurasia Programme at Chatham House, the Royal Institute of International Affairs) academic/analytical journal in English UA: Ukraine Analytica is the first Ukrainian language on International Relations, Politics Dr. Róbert Ondrejcsák (Slovakia, Director of and Economics. The journal is aimed for Center for European and North Atlantic Affairs) experts, diplomats, academics, students interested in the international relations and H.E., Dr. Oleg Shamshur (Ukraine, Ambassador Ukraine in particular. Extraordinary and Plenipotentiary of Ukraine to France)

Contacts: Dr. Stephan De Spiegeleire (The Netherlands, website: http://ukraine-analytica.org/ Director Defence Transformation at The Hague e-mail: [email protected] Center for Strategic Studies) Facebook: https://www.facebook.com/ ukraineanalytica Ivanna Klympush-Tsintsadze (Ukraine, Twitter: https://twitter.com/UA_Analytica Member of the Parliament of Ukraine)

Dr. Dimitris Triantaphyllou (Greece, Director of the Center for International and European Studies, Kadir Has University (Turkey))

Dr. Asle Toje (Norway, Research Director at the Norwegian Nobel Institute)

UA: Ukraine Analytica · 2 (2), 2015 1 TABLE OF CONTENTS

TO BUILD A FOREIGN POLICY CAPABLE OF DEVELOPING ...... 3 Interview with Hanna Hopko, MP, Head of the Committee on Foreign Affairs of the Parliament of Ukraine for UA: Ukraine Analytica

AT THE RIGHT TIME IN THE RIGHT SHAPE ...... 8 Amb. Andri Veselovsky

EASTERN PARTNERSHIP UNDER RECONSTRUCTION: THE UKRAINIAN TEST...... 18 Hennadiy Maksak

FACTORS INFLUENCING THE PERCEPTION OF AZERBAIJAN IN RELATIONS WITH THE EUROPEAN UNION...... 25 Rovshan Ibrahimov

EASTERN EUROPEAN REGIONAL COOPERATION AFTER CRIMEA: THE ART OF THE POSSIBLE ...... 32 Iryna Maksymenko

POLITICAL AND ECONOMIC CONSEQUENCES OF THE EU’S AUTONOMOUS TRADE PREFERENCES FOR UKRAINE ...... 41 Anton Kuchukhidze

LIVING IN SUSTAINED UNCERTAINTY. THE BLACK SEA REGION AFTER THE 2008 GLOBAL FINANCIAL CRISIS...... 48 Panayotis Gavras and Panagiota Manoli

ENERGY PROJECTS AROUND THE BLACK SEA: GEOPOLITICS VS. ECONOMY...... 56 Amb. Sergiy Korsunsky

POLITICS VS. ECONOMY IN EUROPEAN ENERGY AFFAIRS AND THE ROLE OF UKRAINE...... 63 Andrii Chubyk

2 UA: Ukraine Analytica · 2 (2), 2015 ENERGY PROJECTS AROUND THE BLACK SEA: GEOPOLITICS VS. ECONOMY

Amb., Dr. Sergiy Korsunsky, Ambassador of Ukraine to Turkey

In the 21st century, it has become even whims because it has its own natural gas clearer that political considerations come sooner than economy when global goals assuming an important role of a transit and concepts are at stake. Unfortunately, stateand oil.to Weadd areeven now more witnessing visibility Turkeyto its it will be an exaggeration to say that the already well-deserved position among the contemporary globalized world is ruled Organisation for Economic Co-operation by markets only. More and more often and Development (OECD), G-20 and NATO economy follows political decisions and member states as a country with a strong that brings turmoil into the well-being of industrial base. even the most developed members of the international community. Number one area of such unbalanced approach is energy, in Europe knows too well that particular oil and gas. diversification of energy «sources and routes as well as There is a number of economic factors the development of gas pipelines that determine the political weight of a infrastructure inside Europe is a key for its national security volume of GDP and amount of foreign investments,particular country. GDP Itper is capita, definite export/ that a import ratio and technological strength Next year will mark the 10th anniversary are among them. But in case of Eurasia, as a whole, and the Black Sea region in Ukraine. Since the harsh 2005/2006 winter, particular, this list is not complete without of the first gas war Russia opted against energy infrastructure considerations. of energy sources and routes as well as the For example, in terms of GDP or level developmentEurope knows of too gas wellpipelines that diversificationinfrastructure of technology, Russia cannot compete inside Europe is a key for its national with the vast majority of the EU member states and yet it is an important supplier the potential of the Caspian basin came of natural gas to Europe and oil to the intosecurity. fruition Slow while but definite Russia efforts started to tounlock lose world market. Ukraine is an indispensable its strategic importance because of the part of this supply chain as a transit hub, unwise pricing policy, shadow business although country’s GDP is far below schemes and most recently its aggression its potential. Iran, Turkmenistan and against Ukraine. Here Turkey came into the picture as a major emerging link between of all because of their carbohydrates the enormous potential of Azerbaijan, resources.Azerbaijan Romania are important is able to players conduct first its Turkmenistan and Iran on one side, and foreign policy independently of Russia’s European consumers on another. It is

56 UA: Ukraine Analytica · 2 (2), 2015 expected that being a candidate country for Russian energy geopolitics the EU membership and a seasoned NATO member Turkey will play its role well. The state of Russia’s gas sector is dire. Gas production has been falling for several years It is not an easy task. There is no doubt that if Russia stopped seducing Ankara with a downfall of almost 20 percent. To save its highly suspicious proposals, Turkey would facein a row the and Russian in the firstGovernment half of 2015 made it reached those follow the most logical path of becoming data secret since July 2015100. Gazprom a transit hub for all sources of natural was taken to arbitrage in Stockholm after gas coming to Europe from the Caspian several consumers demanded price cuts basin and even the Middle East. But such based on market realities. Some of them, a development will be a major geopolitical including Poland, succeeded. The most blow to Russia. The leaders in Kremlin feel striking case is the recent appeal of the threatened with democratic developments Turkish state petroleum pipeline company in Ukraine and its rapprochement with the European Union. Moscow has developed a Commerce to resolve a row over the price policy of bypassing Ukraine with politically ofBotaş Russian to thegas after International two countries Chamber failed to of motivated gas pipeline projects. been saying it had obtained a 10.25 percent On January 1, 2016, the Deep and sign a deal. Since February 2015, Botaş has Comprehensive Free Trade Zone between (bcm) of gas it buys from Russia each year Ukraine and the EU will enter into full force butdiscount the two on sidesthe 28-30 have beenbillion at cubic loggerheads meters to deep and comprehensive dissatisfaction of over the deal for months101 Russia, making things worse. Being desperate also Turkey’s state pipeline operator, said to achieve its political goals with political . Botaş, which is harassment and direct bribery of corrupt Gazprom of arbitration aiming to cover politicians of Yanukovich’s government, thein its price statement of Russian that itnatural had notified gas purchased Russia’s since the beginning of the year. If Gazprom’s infrastructural projects threatening to bypass Ukraine,Moscow createddiminish a itsfictional value realityfor Europe of energy as a its disputes in court, what would one transit country and block any alternative expect“strategic from partner” Gazprom like Botaşin relation has to resolveto less valuable consumers? This Turkish-Russian controlled by Gazprom. Only after a two-year dispute is only one of many, including anti- “soaproutes opera” from Eastworth to 5 Westbillion other USD thanRussia those had monopoly investigation against Gazprom in to abandon the politically motivated South the EU, which as well has a terrible smell of widespread corruption. from the economic point of view and this exampleStream project.allowed ItEuropeans was initially to learn unjustified a lot Russian president Putin made a surprise about the Russian way of shaping foreign announcement about the plans to construct policy. Let us take a closer look at what is a new “Turkish Stream” pipeline that going on around the Black Sea since Russian had to replace the failed “South Stream” propaganda mastered the creation of a project during his December 1, 2014 parallel reality to perfection. visit to Turkey102. Since then the Russian

100

101 S.Korsunsky.В Росії� засекретили Turkey as статистичні a regional energy дані про hub: видобуток dreams and газу realities // Украї�нська // Daily sabah,правда, January 19 серпня 24, 2015 2015 // р. // http://www.dailysabah.com/opinion/2015/01/24/turkey-as-a-regional-energy-hub-dreams-and-realitieswww.pravda.com.ua/news/2015/08/19/7078268/ 102

С.Корсунський� . Що насправді відбулося під час візиту Путіна в Анкару? // «День», 16 грудня 2014 р., №236 UA: Ukraine Analytica · 2 (2), 2015 57 propaganda has done a lot to push Stream is important but not vital” and put Europeans to “accept the reality” that forward another hoax project — North after 2019 Ukraine is out of the picture Stream-2. The North Stream-1 is half-empty as a transit state. European Commission has been urged to invest tens of billions when it comes to harassment techniques of dollars into infrastructure in Greece Gazpromand hardly stops economically at nothing. In profitable, October 2015, but to bring Russian gas through this newly Turkish Minister of Energy said that his designed route. But it was too late. country “is not ready to discuss Turkish European Commission has learned a lot Stream” and drew a Russian response that from the South Stream saga and did not buy “discount for gas prices could be discussed this threat. In its turn, Russia announced in connection with the project”106. Then that “the agreement with Turkey is almost Alexei Miller made an announcement at signed” and Miller even visited Turkey the Saint-Petersburg economic forum that “to determine the route of the Turkish Gazprom decided to cut initially planned Stream”103. The EU stood still. Then on capacity of the Turkish Stream in half. July 3 2015, Italian Saipem’s pipe-laying The Turkish Government responded that vessel Castro Sei set sail to Russian waters it has interest only in one lane and has no to prepare for the offshore construction of intentions to waste money rather than the Turkish Stream. Saipem had signed a 2 billion euros contract for the construction ended up at the arbitrage. invest into something profitable. Then it all Offshore Pipeline. After Russia terminated thisof theproject, first it lane was ofsaid the that South Saipem Stream now Competing projects works for the Turkish Stream, since “it is almost the same route”104. Six days later, Facing cold shoulder from Europe and on July 9, Russian authorities cancelled increased competition at home, Russia’s their commission to Italian Saipem and Gazprom has struggled to assert dominance announced that “the future of the Turkish on the global energy market. But Gazprom Stream is no longer dependent on this is grappling with a series of issues, contract”105. South Stream Transport, including the recent loss of the Ukrainian Gazprom’s wholly owned subsidiary market — a direct consequence of the has to pay Saipem 300 million Euros as compensation. It was announced that the efforts, the US shale gas revolution and South Stream Transport would enter into increasedaggression, competitionEurope’s energy on diversificationthe domestic negotiations with other constructors. The and LNG markets, which jeopardize its point is that there are none. slipping into recession due to lower oil But the game continued. In September, status as a gas giant. With Russian economy Turkey said it completely freezes the it is predicted that Gazprom would produce Turkish Stream. Gazprom said that “Turkish 414prices bcm and of Western gas this sanctionsyear, an all over time Ukraine, low for

103 - - Turkey, Russia’s Gazprom survey new pipeline route // Hurriyet Daiy News, February 8, 2015 // http://www.hur 104 Saipemriyetdailynews.com/turkey-russias-gazprom-survey-new-pipeline-route-.aspx?pageID=238&nID=78053&News prepares to start Turkish Stream pipeline construction // July 3, 2015 // http://en.trend.az/business/ energy/2413979.htmlCatID=348 105 Gazprom scraps Turkish Stream’s phase with Saipem // Daily Sabah, July 9, 2015 // http://www.dailysabah.com/ energy/2015/07/09/gazprom-scraps-turkish-streams-phase-with-saipem 106 Turkey not yet ready to discuss Turkish Stream — Minister // October 3, 2015 / http://en.trend.az/business/

economy/2439687.html UA: Ukraine Analytica · 2 (2), 2015

58 the public company sitting atop some of the world’s largest natural gas reserves. monopolistic situation in a strategic commodity like natural Gazprom market capitalization has «gas, which can determine plummeted in recent years as well. Prior to economic cycles, means the lack of market approach in the entire region the company was worth more than 300 billion USD.2008 Itsfinancial value crisisnow isand even the belowcrisis in 50 Georgia, billion USD107, trailing far behind the world’s other strategic perspective the Trans-Anatolian Gas major energy companies (for comparison — Pipeline (TANAP) is the most important part Exxon Mobil — 360 billion USD, Petro of the Southern Energy Corridor, which will China — 330 billion USD). Gazprom has carry Azeri, Central Asian, Middle Eastern been slow to react to the ever-changing gas and Eastern Mediterranean gas reserves to market, clinging to lengthy contracts based comes into operation, the energy monopoly, the foreign policy does not bode well with whichEurope is through mostly supervised Turkey. When by Russia TANAP today, fully on oil prices. Definitely, its role as a tool for will be broken. The Turkish Stream idea is directed at preventing this from happening torealities. their post-Soviet The Ukrainian nadir, conflict, has exacerbated which has and here again politics prevail over economy Europe’spropelled desire Russian to dissociate relations with Gazprom. the West and reason. Even the traditional supporters of Gazprom turned away from the company and its It should be noted that a monopolistic unpredictable behaviour. Russia’s authorities situation in a strategic commodity like blamed Bulgaria’s Government and the natural gas, which can determine economic European Commission for the failure of the cycles, means the lack of market approach South Stream although it was a direct result in the entire region where monopoly of their own decisions based on political and voluntarily determined prices reasons rather than economic ones . prevail. Therefore, the fact that Turkey 108 and Azerbaijan have started to nourish It is estimated that gas consumption in the European markets in energy through Eurozone will reach 760 bcm by 2030, which the Southern Gas Corridor will not only indicates that the EU’s dependency on the affect price regulations in Europe, Turkey and Asia Minor. In this case, TANAP is an short, the EU’s gas imports will increase to economic and political instrument that 240energy bcm imports or so by will 2030 reach109 . aroundEU has 80%.to meet In brings (i) energy safety, more democracy, political stability and peace in the region; through the Southern Gas Corridor that passesthis energy through deficit Turkey. either It is also from well Russia known or energy-related commodities; (iii) more that several new LNG terminals have recently regional(ii) market integration defined pricesand cooperation for energy in and a been built in France, Poland and Lithuania peaceful way, including the creation of a vast to accommodate the Unites States shale gas integrated and interconnected economic export opportunities, which are going to zone from the Balkans and Eastern Europe be operational very soon. But so far, from a to Caucasus and Asia Minor.

107 com/world/2015/aug/07/gazprom-oil-company-share-price-collapse How Russian energy giant Gazprom lost $300bn // The Guardian, August 7, 2015 // http://www.theguardian.

108 2015 109 Roberts, John. The �mpact of Turkish Stream on European Energy Security and the Southern Gas Corridor, July

Tagliapietra, Simone and Zachmann, Georg. designing a new EU-Turkey Strategic gas partnership, July 2015, №10 UA: Ukraine Analytica · 2 (2), 2015 59 In addition, an Italian energy company Eni Nuclear energy factor has recently announced that it discovered However, it is not only oil and gas Egyptian shore, which, it said, is the that constitute the issue when energy largesta “super ever giant” to have natural been gas found field offin the blackmailing can be used. Nuclear energy Sea110 is no less important and dangerous. In by the Egypt’s oil ministry and could hold recent decades, the nuclear energy sector . The discovery was also confirmed experienced a renaissance. After Three Mile about 100 square kilometres. Thus, it Island’s accident in the US in 1979 and the coulda potential be one 850 of the bcm world’s of gas largest in an natural area of gas reserves. This discovery combined a number of developed countries decided to postponeChernobyl the catastrophe construction in Ukraine of new inNuclear 1986, Cyprus brings another wider opportunity Power Plants (NPP) and even decommission whenwith offshoregas from gas the and Mediterranean oilfields found will in those already built. As it turned out, in the

territory. In this way, the Black Sea and the impossible to survive without nuclear Mediterraneanflow to Europe regions through could thebe combined Turkish energy,contemporary particularly world for it isthose difficult economies, if not into a huge zone of cooperation and which are not rich in oil, gas or coal. prosperity. Among the countries that joined the pool of To achieve this goal the Middle East needs nuclear energy community most recently, peace. The war in Syria, fuelled most there are two notable newcomers — Iran and recently by Russian involvement, ignited Turkey. The NPP in Busher (Iran) was built by even more violence than before. Trying to Atomstroyexport of the Russian Federation distract attention from its adventures in and became operational in 2011. It is not Ukraine and to prevent Iran from further entirely clear why the country with vast oil and gas reserves spent billions of dollars on leaders sent troops and ammunition to the NPP, but the plant was constructed. As supportrapprochement the regime with of the Bashar West, al-Asad. Russian for Turkey, the decision to introduce nuclear Thus, European Union now sees more energy sector into its growing economy refugees, while Saudi Arabia, Iran and other oil rich countries have to spend options to satisfy industry and population more on war thinning high currency and withis definitely a stable and justified. reliable Turkey supply has of electricity very few gold reserves already severely damaged and the construction of a NPP could be a by the low market prices. So far, the international community was able to chosen, it is going to be in Akkuyu and it is withstand this move of Kremlin, but the goingsolution. to be The Russian-made. first site has been already question is how long the war in Syria will last. In 1973, an oil embargo created the Nevertheless, devil is in the details. There are no small issues in the nuclear energy were used as a political tool. The Russian sector and Ukraine knows that better than Federationfirst precedent, learned when that energy lesson resourceswell and anybody else does. Nowadays there are four has been using it extensively in Europe and now in Asia. reactors, all of them being Russian-built NPPs in Ukraine, which encompass fifteen

110 Dipaola, Anthony. Eni Discovers Massive Gas Field in the Mediterranean // Bloomberg Business, August 30, 2015 //

http://www.bloomberg.com/news/articles/2015-08-30/eni-discovers-super-giant-natural-gas-field-offshore-egypt

60 UA: Ukraine Analytica · 2 (2), 2015 The construction of NPP is NuclearVVER-types. Power The firstPlant. NPP It builthas inbecome the early a not an end but a beginning symbol1980s byof Russiatechnological is the failure famous and Chernobyl human «of a long journey into the imperfection. Combined, those two factors world of nuclear technologies caused the worst technological catastrophe in the history of mankind. Amazingly, another recent tragedy at Fukushima NPP in NPP is being operated. It is absolutely not happened the same year that the Busher enough just to teach Turkish students the NPP started to generate electricity. Ukrainian basics of nuclear energy industry. But what engineers and environmentalists were asked is necessary is to learn from experience to help Japanese colleagues to cope with of other countries. It is absolutely vital to the disaster since Ukrainian experience in understand every detail of a wider picture dealing with Chernobyl is unique. of the chain: fuel production (where, by whom, is it a monopoly?); delivery of the fuel (how can it be done, is it safe enough?); to follow a long list of very strict security, operation of NPP (is it environmentally safetyWhen a countryand environmental decides to build regulations.a NPP, it has safe? do we know what to do if there is a a result of decades of sector experience. waste disposal (on-site storage? to store Particularly,They are not several artificially questions imposed, should but arebe deepleakage in orthe fire?);ground spent somewhere? fuel and to nuclear send asked and answered. Firstly, how is nuclear it to another country?). The construction fuel going to be supplied to the plant? In of NPP is not an end but a beginning of a case of Russian-made fuel, it is of unique long journey into the world of nuclear composition, which can only be delivered in technologies. It is just wise to get ready special casks. If it is going to be delivered through the Bosporus, what kind of safety procedures should be put forward to Andeven beforeyet money-stripped the construction Russia is finished. agreed exclude accidents with highly enriched to invest 22 billion USD into a four-unit uranium? Secondly, what is going to happen Nuclear Power Plant in Turkey in exchange with spent fuel? Until recently, Ukraine for a simple obligation from the Turkish had been paying hundreds of millions Government to purchase electricity of dollars to Russia for re-processing of produced at a certain tariff. Obviously, spent fuel and then decided to store it on no country around the globe could afford its territory until technology to process such an agreement, which is very good for it in Ukraine is in place. In case of Turkey, Turkey. Moreover, there is little doubt that this should be taken into account because it was done with politics in mind, since such technology requires thoroughly Russian technology could be attained by enforced regulation and the construction Russian engineers only, as only Russian of in-site storage facilities. Thirdly, it is very fuel could be supplied for Russian reactors. important to evaluate environmental risks Monopoly in nuclear industry is far more in case of an accident, giving the proximity dangerous than monopoly in oil and gas, of touristic Antalya and Cyprus to Akkuyu and international community will have to site. Unfortunately, the information site deal with it rather sooner than later. developed by Rosatom for Akkuyu project has no answers to those questions. Russia has publicly touted an array of natural gas export projects over the recent It is absolutely not enough just to show years, a web of pipelines that would connect Turkish engineers how a Russian-made Russian gas to some of its largest customers

UA: Ukraine Analytica · 2 (2), 2015 61 while also achieving important strategic be based on good economy and never on objectives like circumventing Ukraine. arm-twisting and intimidation. Invasion in However, many of those projects have not Ukraine made Russian cooperation with and will not come to pass. Only one of the the most sophisticated transit network in two proposed Blue Stream lines was built Europe almost impossible. Ukraine should and put into operation in 2005 after eight integrate its energy network with Europe years of wrestling, and only half of the and let Russia deal with China instead. And widely advertised North Stream is now let the economy prevail. in action delivering half of its capacity of natural gas to Germany. In spite of all efforts, Atomexport failed to build new Nuclear Power Plants in Europe switching to Asia Dr. Sergiy Korsunsky is Ambassador Extraordinary instead. Similarly, Gazprom is trying to and Plenipotentiary of Ukraine to Turkey, a well-known compensate its losses in Ukraine and across expert in the field of energy security. He is an author the region with China, India, Pakistan and of more than 150 academic papers and numerous Japan deals. Moscow found pretty tough publications on the topic, including six books, among negotiators in Asia, because it does not want them “Energy Diplomacy” (2008). He was awarded the to learn that times have changed since the disintegration of the . In order title “the Distinguished Economist of Ukraine” (2008). to be successful today good politics should

62 UA: Ukraine Analytica · 2 (2), 2015